Why Is Everyone Still Talking About Inflation?

Nick Little - October 27, 2026

Author: Nick Little, Principal Financial Adviser at Professional Private Wealth

Just when it looked like inflation was coming under control, it came roaring back into the conversation.

There isn’t one simple reason. Government spending, strong demand, supply-side shocks, global conflicts, the AI investment boom and Australia’s housing shortage are all playing a role, and understanding this mix helps explain why interest rates remain such a big issue.

Why Is Everyone Still Talking About Inflation?

There was a point when inflation seemed like yesterday’s problem.

Unfortunately, no one told inflation.

So why has inflation proved so difficult to put back in its box?

The simplest answer is that there isn’t one culprit. Australia is being hit by several inflationary forces at the same time.

And they’re coming from some very different places.

1. Government Spending And A Busy Economy

One important part of the picture is government spending.

When governments spend money on infrastructure, health, defence, care services and other programs, that money doesn’t disappear into Canberra. It flows through to businesses, wages, contractors and households.

That’s generally a good thing. We want hospitals, roads, aged care and essential services.

The challenge comes when government and the private sector are both competing for workers, materials and services at a time when there isn’t enough capacity to comfortably meet everyone’s needs.

Think about trying to renovate your house when seemingly everyone else has decided to renovate theirs.

There’s only so many builders to go around.

Government spending has occupied a much larger share of the Australian economy, rising from below 24% a decade ago to 28.8% in the 2026 March quarter.

That doesn’t mean government spending is the cause of inflation. It means it is one part of the demand equation at a time when the economy is already dealing with capacity constraints.

2. Then The World Threw Another Energy Shock At Us

There are some things the Australian Government and the RBA simply cannot control.

War is one of them.

The Australian Government says the conflict in the Middle East has severely disrupted global oil supplies, contributing to higher inflation and slower economic growth.

And oil doesn’t just affect the number displayed at the local petrol station.

Energy is embedded throughout the economy. Goods need to be manufactured, transported and delivered. Agriculture uses fuel. Airlines use it. Businesses face higher transport and energy costs.

So, an energy shock overseas can eventually find its way into prices paid by Australian households.

3. AI Isn’t Just Chatgpt. It’s An Enormous Construction Project

Many of us want to pass on more than wealth.

There’s another inflationary force that would barely have rated a mention a few years ago: artificial intelligence.

We tend to think of AI as software.

Behind the screen, however, is a huge physical investment boom.

AI requires enormous data centres, computer chips, electricity generation, transmission infrastructure, cooling equipment and construction. Globally, vast amounts of money are being committed to building that infrastructure.

The RBA has specifically pointed to AI-related demand driving rapid growth in global prices for technology-related goods as one of the current sources of inflation pressure.

It’s a fascinating contradiction.

AI may eventually make businesses far more productive and actually help reduce some costs.

But building the infrastructure required to produce that future is creating substantial demand today.

4. And Then There’s Australian Housing

This is the one that almost everybody can relate to.

We simply need more homes.

When there aren’t enough properties available relative to the number of people wanting somewhere to live, renters compete for limited housing. Building more homes is the obvious long-term solution, but construction itself faces constraints around costs, labour, planning and capacity.

Interestingly, the Budget also proposes changing the tax treatment of property investment.

From 1 July 2027, negative gearing is proposed to be limited to new residential properties, while established investment properties purchased after Budget night would no longer allow rental losses to be deducted against broader income such as wages. Existing holdings are proposed to be grandfathered.

The intention is important: encourage investment towards building new homes rather than investors competing with home buyers for existing ones.

But there is a balancing act here.

If policies discourage investment in established rental properties without enough new properties being built to compensate, the availability of rental housing becomes an important issue to watch. That doesn’t mean the reforms will necessarily reduce rental stock, but it highlights just how difficult housing policy can be.

We want more first-home buyers to own homes. We also need enough rental properties for Australians who rent. And ultimately, neither problem is solved without more housing being built.

Nick’s Take

Inflation isn’t just an economic statistic. It’s a quiet change in what your money can actually buy.

That’s why focusing solely on whether your investment account went up or down this year can miss the bigger picture.

For retirees, the real question is:

“Is my income and capital keeping pace with the cost of the life I want to live?”

And for policymakers, there’s a similar question.

If the RBA is using higher interest rates to take some demand out of the economy while governments are simultaneously adding significant demand, the two forces can partly pull in opposite directions.

That doesn’t mean all government spending is bad. Far from it. But how much is spent, where it is spent and whether it expands Australia’s productive capacity matter enormously when inflation is already above target.

Ultimately, getting inflation sustainably lower means bringing demand and supply back into balance. Until that happens, expect inflation and interest rates to remain two of the most important numbers affecting Australian households.

If you’d like to discuss what higher inflation and interest rates could mean for your own retirement plans, investments or cash flow, we’re always happy to have a conversation. Get in touch with Professional Private Wealth to book a conversation on 0408 702 056 or click below.

IMPORTANT INFORMATION

The information provided in this communication is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this communication you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.

This communication may contain certain ‘forward looking’ statements. Forward looking statements, opinions and estimates provided are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Forward-looking statements including projections, indications or guidance on future earnings or financial position and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. There can be no assurance that actual outcomes will not differ materially from these statements.

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